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Individualism, democracy, and contract enforcement

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  • Cline, Brandon N.
  • Williamson, Claudia R.

Abstract

We examine a potential link between culture and financial development by considering culture's influence on contract enforcement regulation. Specifically, we investigate the role of individualism in determining the variation in enforcement costs across countries. Individualism positively and significantly relates to efficient contract enforcement, an association that is independent of a particular political system. Interaction effects, however, suggest that democracy magnifies individualism's influence on the contract enforcement efficiency. These results provide insight into how culture can shape financial outcomes. It further suggests that culture serves as a constraint on policymakers, as any given policy or formal institutional structure will function very differently depending on the cultural environment.

Suggested Citation

  • Cline, Brandon N. & Williamson, Claudia R., 2017. "Individualism, democracy, and contract enforcement," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 284-306.
  • Handle: RePEc:eee:corfin:v:46:y:2017:i:c:p:284-306
    DOI: 10.1016/j.jcorpfin.2017.07.010
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    Cited by:

    1. Brandon N. Cline & Claudia R. Williamson, 2020. "Trust, regulation, and contracting institutions," European Financial Management, European Financial Management Association, vol. 26(4), pages 859-895, September.
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    3. Kodila-Tedika, Oasis, 2018. "Does Masculinity Matter for Female Leaders? Evidence in cross-section countries," MPRA Paper 84776, University Library of Munich, Germany.
    4. Davis, Lewis S. & Williamson, Claudia R., 2019. "Does individualism promote gender equality?," World Development, Elsevier, vol. 123(C), pages 1-1.
    5. Mohammad Bitar & Amine Tarazi, 2020. "Individualism, formal institutional environment and bank capital decisions," Working Papers hal-02964610, HAL.

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    More about this item

    Keywords

    Contract enforcement; Culture; Financial regulation; Individualism;
    All these keywords.

    JEL classification:

    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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